Abstract

http://ssrn.com/abstract=1364924
 
 

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Internal Capital Allocation and Firm Performance


Ilan Guedj


Bates White, LLC

Jennifer C. Huang


University of Texas at Austin - Department of Finance

Johan Sulaeman


Southern Methodist University (SMU) - Edwin L. Cox School of Business

October 9, 2009


Abstract:     
We introduce a novel concept of the activeness of internal capital allocations across industries. We derive a measure of this activeness and use it to compare the performance of firms with different capital allocation styles. We find that firms that actively change their capital allocation across industries have a lower average industry-adjusted profitability than firms that follow passive strategies. Moreover, we find that active firms obtain lower valuation and lower excess stock returns in subsequent periods. Our findings suggest that conglomerate firms that actively allocate resources across industries do not do so efficiently, and that the stock market does not fully incorporate the information revealed through the internal capital allocation process.

Number of Pages in PDF File: 49

Keywords: internal capital allocation, firm performance, stock return

JEL Classification: G31, L25

working papers series





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Date posted: March 22, 2009 ; Last revised: March 18, 2010

Suggested Citation

Guedj, Ilan and Huang, Jennifer C. and Sulaeman, Johan, Internal Capital Allocation and Firm Performance (October 9, 2009). Available at SSRN: http://ssrn.com/abstract=1364924 or http://dx.doi.org/10.2139/ssrn.1364924

Contact Information

Ilan Guedj
Bates White, LLC ( email )
2001 K St., NW
Suite 700
Washington, DC 20006
United States
HOME PAGE: http://www.bateswhite.com/professionals-Ilan-Guedj.html
Jennifer Chunyan Huang (Contact Author)
University of Texas at Austin - Department of Finance ( email )
McCombs School of Business, B6600
Austin, TX 78712
United States
512-232-9375 (Phone)
512-471-5073 (Fax)
Johan Sulaeman
Southern Methodist University (SMU) - Edwin L. Cox School of Business ( email )
Dallas, TX 75225
United States
214-768-8284 (Phone)
HOME PAGE: http://jsulaeman.cox.smu.edu
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